Carnival Stock Has Room to Run Even After Record Month, Jefferies Says

(Bloomberg) — Carnival Corp. shares have never seen a month this good and at least one analyst says investors should be expecting more of the same.

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The cruise-line operator jumped 9.7% on Friday, pushing its gains for June to a record 68% after Jefferies upgraded its rating to buy from hold and boosted its price target to a Street-high $25. Competitors Royal Caribbean Cruises Ltd. and Norwegian Cruise Line Holdings Ltd. also traded higher.

“Despite the strong year-to-date performance, we believe the journey from a good trade to long-term investment case remains ahead,” analyst David Katz wrote in a note to clients.

While cruise-line operators have seen an uptick in demand this year in the aftermath of the pandemic, there have also been signs that the post-Covid spike in travel may be beginning to ease. Data from the US Travel Association earlier this month estimated that leisure trips within the US will increase 1.4% this year and about 3% or less in each of the next three years, a sharp drop from 27% growth in 2021 and 6.2% last year.

Read more: US Travel Growth Projected to Slow as Post-Pandemic Demand Wanes

Still, investors have hardly shied away from piling into cruise stocks. Carnival’s 134% gain this year makes it the third-best performer in the S&P 500 Index, trailing only Nvidia Corp. and Facebook owner Meta Platforms Inc. Meanwhile, Royal Caribbean has more than doubled this year and is on track for its best annual performance since 1997, while Norwegian has jumped 78%, set to be a record year.

Katz points to Carnival’s solid demand growth and its pivot toward positive cash flows as a reason why the stock should continue to perform well. The company told investors on its second-quarter conference call Monday that it expects cash flow from operations to average $5 billion annually over the next three years.

Chief Executive Officer Josh Weinstein, who took the helm in August to set the company’s post-pandemic strategy after years of lockdowns left travel and leisure companies in a lurch, is also a major driver of Carnival’s resurgence and its long-term attractiveness, according to Katz.

“It has become clearer to us that his operating engagement has and should continue to prove beneficial to the company and its results,” Katz said.

–With assistance from Dawn McCarty.

(Updates stock moves at market close)